I've been covering the business of news, information and entertainment in one form or another for more than 10 years. In February 2014, I moved to San Francisco to cover the tech beat. My primary focus is social media and digital media, but I'm interested in other aspects, including but not limited to the sharing economy, lifehacking, fitness & sports tech and the evolving culture of the Bay Area. In past incarnations I've worked at AOL, Conde Nast Portfolio, Radar and WWD. Circle me on Google+, follow me on Twitter or send me tips or ideas at jbercovici@forbes.com.

AOL After The Honeymoon

What happens when you mix the ambition of Arianna Huffington with the desperation of Tim Armstrong? AOL shareholders will soon find out.

AOL Chairman Tim Armstrong seemed to find his ideal mate in Arianna Huffington. He needed someone to galvanize his drifting editorial division and give it a distinctive voice to woo readers and advertisers. She provided all that with The Huffington Post, one of the most successful publishing ventures of the last decade. In just six years her site became one of the world’s top ten news destinations–and profitable, to boot. Armstrong, seeing a savior, was willing to spend $315 million for it in February and to make Huffington editor-in-chief of AOL’s 1,200-person newsroom. “Arianna represents what the future will look like for social news,” Armstrong said on CNN the day the deal was announced.

But Armstrong’s big coup could also be AOL’s eventual undoing. In hitching himself to Huffington, he has signed on to a mission and an agenda that go well beyond his mandate of re-creating value for shareholders. He has also tied himself to somebody who has demonstrated that she puts her own interests ahead of those of her partners. At HuffPo she repeatedly jousted with her fellow board members, whom she saw as stifling her ambitions to build a news operation to rival the New York Times. “There was a bucking bronco whenever someone said, ‘No, you can’t do that,’” says Greg Coleman, HuffPo’s chief revenue officer at the time, who wasn’t offered a job at AOL after the deal. “I know Arianna very well,” he continues. “She wanted three things: a big bag of gold, a big fat contract, which she deserved, and … unilateral decision making over her world. And that is where you’re going to have some problems. Arianna hates to be managed.”

Consider the way she railroaded the buyout over the objections of some of her board members. When Huffington first took the deal back to her partners, a couple of them protested. “Our goal was an IPO rather than building up the company to be acquired by another media company,” says Palo Alto venture capitalist Fred Harman, whose firm, Oak Investment Partners, injected $25 million into HuffPo in 2008 at a valuation of $100 million. While Ken Lerer, Huffington’s original partner in the launch, was content to sell, Harman and Eric Hippeau, HuffPo’s CEO and the fourth member of its small board of directors, held out, believing a billion-dollar public offering was possible given the patience to wait a year or two. “Even when Tim put a preemptive offer on the table, Eric and I were still inclined to roll forward as an independent company out of the belief that The Huffington Post could continue to rapidly scale and be the dominant social news company on the Web,” Harman says. (Huffington and Armstrong both declined to be interviewed for this story.)

Huffington, whom FORBES described in an October 2010 cover story as a “force of nature,” was not to be dissuaded. In effect, she subverted the wishes of the board. The deal was in no small part her doing, and she did not intend to pass it up. Harman and Hippeau had little choice. Having backed a company built on Huffington’s social connections and personal brand, they were at her mercy. “AOL and Tim Armstrong represented a platform and partner for Arianna to greatly accelerate her ambitions of industry dominance for The Huffington Post,” says Harman. “And simply put, nothing was going to stand in the way of that.”

Armstrong may have hopped on the Arianna Express a bit too eagerly. There are a number of reasons to believe that he went into discussions with a poor grasp of how HuffPo functions–and may have overestimated Huffington’s importance to the operation. In fact, his opening offer was to hire her away from the company that bore her name, according to Harman. He may not have completely understood her business, either: AOL executives say that Armstrong talked a lot about the importance of recruiting hordes of free bloggers–who, in fact, are not the main drivers of traffic at HuffPo. “It was always, ‘Arianna does it. That’s what she’s built her business on. Why don’t we do it, too?’” says a former AOL editor-in-chief.

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“You make a case and he listens to the facts to make a determination. Then somebody else speaks and 20 minutes later he changes his mind,” says a onetime member of Armstrong’s executive team. “So you’d better be the person who goes down the elevator with him at the end of the day.”

Will AOL become HuffPo, or vice versa? Success or failure lies in the balance. For now it looks like AOL is treating HuffPo like a White Space project, giving Arianna and her team permission to do what’s needed – and the resources to make it happen. But will AOL’s leadership (and the Board) stick with it – or do what they’ve historically done and pull back the reins? If the latter, the whole company goes down.

For now, signs look good! But if Arianna decides the aggravation exceeds the value – given her big payoff with the sale to AOL – the situation could retrovert very quickly.

Just look at how News Corp started out great with MySpace, but eventually tied it into knots with “professional management” destroying the value (and leaving the market for Facebook.) Signs look good now, but things would look a WHOLE LOT better if HuffPo gets the profits up in a hurry!

Since this article was posted, AOL’s stock value has plummeted, in two days, from $21 to $19.50, and at moment I am watching it fall like a stone.

What I think is missing from this article is how the subscriber base is going to evaporate now that AOL has hitched its wagon to a far left nuthouse like Huffington Post. This is going to drive away subscribers and advertisers like the plague. I’m shorting this puppy down to about $5, which is what it’s worth.

There were several points lost in your article “AOL after the Honeymoon”. Arianna is a tremendous entrepreneur and like most great entrepreneurs, she is a force of nature. She has vision and strong opinions but with the persuasive logic to back them up. During the course of my tenure on the company Board, I always found her to be respectful of other points of view and on all occasions we were able to reach a consensus about strategy and hiring plans for the business in a professional and collegial manner. This includes the final decision to sell the company which was certainly not railroaded and on any measure was a great outcome for all the Huffington Post shareholders. And most importantly, I think her and Tim’s best work is yet to come.

Fred, I’m sure there were many points that got short shrift. This is a huge, hairy story and I had limited space to work with. I would love to have been able to quote more extensively from our conversation, which definitely reflected everything you say in your comment. Thanks for taking the time to round out the picture

After reading your piece, I had much of the same reaction that Fred Harman mentions above. While you had limited space for this story, I just wished that some of the positive quotes that I gave you would have been mentioned to round out all of my sentiments Arianna is a force of nature (I called her a “bucking bronco” and one of my quotes that did not make this piece was that “I would never bet against her…ever!” Yesterday on a panel during Internet Week here in NY, I was asked if AOL paid too much for the Huffington Post, and my answer was that “they got a bargain”. I truly feel that The Huffington Post WILL help transform AOL and do it in a very positive and efficient manner. I have many talented friends at the HuffPost and AOL and I want them to succeed and when they do, they should go to the Hall of Fame! No integration is easy.

Greg, you certainly did have more positive things to say than I was able to include. You repeatedly praised Arianna’s smarts and drive and said she is “giving her soul” to making this deal work. Thanks for helping fill out the picture here. Just as you did at the Huffington Post, we believe at Forbes that the conversation around a story is as important as the story itself.

I agree with you: If Tim and Arianna can use the tools your team developed at Huffpo to put AOL on an upward trajectory, it’ll be a fabulous story, they’ll be the envy of the industry, and the acquisition will prove to have been a bargain. It’s a terrific challenge, and that’s why people are so interested. I know Tim hates hearing the deal described as a “Hail Mary,” but every so often a Hail Mary is what wins the game.